The latest seasonally adjusted Absa Purchasing Managers’ Index (PMI) dipped to below 50 points, despite another month of no load-shedding as demand dropped due to election jitters.
According to Bureau for Economic Research economists, the index fell to 43.8 points in May from 54 points in April.
“The drop was despite another month of no load-shedding, although local power outages remain frequent, and the deterioration seems to be driven by a significant drop in demand,” the economists said.
Numerous respondents said that orders had been put on hold as clients waited for the election results.
The PMI has been in contractionary territory for three out of five months this year, as the manufacturing sector seems volatile in an election year.
The business activity index declined to 38.1 points in May from 57.2 points in April, and new sales orders declined to 37.8 points in May from 55.6 points in April.
Amid sustained high interest rates and low credit extension, domestic demand remains sluggish. Respondents stated that orders were drying up as consumers seemed to be focusing on necessities.
Export sales also dipped in May. Supplier problems in Europe affected some local manufacturers in the transport sector, as there were delays in the deliveries of essential parts used as input materials.
“Port issues remain a concern for most local manufacturers, although there was an improvement in supplier deliveries, suggesting that the situation is improving,” the economists said.
The results contained some good news, as the index for expected business conditions in six months’ time increased to 57.6 in May from 55.7 in April.
“Respondents likely hope for a favourable election outcome and a return of ‘put-on-hold’ orders. Manufacturers could also be more upbeat about the global economic recovery, particularly in Europe,” economists said.
Further positive news was that the purchasing price index declined to 66.9 in May from 72.4 points in April. This is the lowest reading in six months and a second consecutive month of decline in input prices, reflecting easing cost pressure.
“Oil prices have remained relatively low due to sluggish demand in the global markets, which supports the manufacturing industry. The stronger rand exchange rate through most of the month likely also contributed to softer cost increases,” the economists noted.
The PMI is an economic activity index based on a survey conducted by the Bureau for Economic Research and sponsored by Absa. The monthly surveys cover a representative group of purchasing managers in the manufacturing sector. These purchasing managers have to indicate each month whether a particular activity for their company has increased, decreased or remained unchanged.
